The New ECN+ Directive: Towards an Even More Integrated Antitrust Enforcement in the EU
The European Parliament and the Council of Ministers recently approved the draft Directive to "empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market" (the ECN+ Directive). The Directive will enter into force 20 days following its publication in the EU's Official Journal, which is expected in January 2019. Member States will then have two years to implement it.
In essence, this Directive aims at strengthening the existing European Competition Network (ECN), which the European Commission (Commission) set up in 2004, when Council Regulation 1/2003 had entered into force. That Regulation decentralized the application of EU competition law by empowering the national competition authorities (NCAs) of the Member States to apply Articles 101 and 102 TFEU alongside the Commission.
The ECN+ Directive is a dense document that counts 77 introductory recitals and 37 articles spread over 10 chapters. This Advisory will focus on two key sets of provisions: those that strengthen the NCAs' enforcement powers when they screen allegedly anti-competitive conduct (chapters IV and V of the Directive, infra A) and those concerning the NCAs' leniency regimes for secret cartels (chapter VI, infra B).1
A. The strengthening of the NCAs' enforcement powers
The ECN+ Directive essentially seeks to ensure that all NCAs will have enforcement powers that mirror those held by the Commission under Regulation 1/2003. It distinguishes between the NCAs' investigative and decision-making powers (Art. 6 to 12) and their power to impose and enforce fines (Art. 13 to 16).
As far as investigative powers are concerned, Member States will inter alia be required to ensure that their NCAs hold the following powers:
1. Investigative and decision-making powers
- NCAs must be able to access any information that is accessible to the company or association being inspected, irrespective of the medium in which the information is stored (Art. 6-1 b). Today, some NCAs cannot access data stored in the cloud or on servers located in other countries. Some others cannot even access mobile phones during inspections to check if company employees have any information about the alleged infringement.2 In its introductory recital n° 73, the ECN+ Directive adds that the NCAs should also be able to access "covert recordings made by natural or legal persons that are not public authorities, provided that they are not the sole source of evidence", subject to respecting the parties' right to be heard. This recital is not reflected in the Directive itself. However, it is in line with the General Court's case law.3
- NCAs must be able to obtain from any representative or member of staff of a company or association explanations on facts or documents relating to the subject matter and purpose of the inspection and to record the answers (Art. 6-1 e). This is not always the case today. For example, under German law, persons subject to the investigation have the right to remain silent.
- NCAs must be able to raid private premises (e.g., homes of directors, managers and other members of the staff of companies or associations of companies) if there is reasonable suspicion that business records are kept in these premises and the NCA has obtained a warrant from the national judicial authority or public prosecutor (Art. 7). Some NCAs (e.g., Bulgaria, Denmark and Italy) lack the power to inspect private premises today.4
- NCAs will be empowered to request undertakings/associations and any third party for information that may be relevant for the enforcement of Art. 101 or 102 TFEU as long as the questions do not invite them to provide self-incriminating answers (Art. 8). This may seem like a fairly basic enforcement power. However, according to the Commission, some—unnamed—NCAs cannot issue binding and enforceable requests for information.5
- NCAs must be able to "summon" natural persons or representatives of legal persons for interviews and to impose fines on those who fail to appear (Art. 9). Remarkably, Regulation 1/2003 does not grant this power to the Commission, but instead requires the interviewee's consent.
With regard to decision-making powers, it is worth noting that Member States must enable NCAs to take interim measures not only when requested by a complainant but also on their own initiative "at least" in cases where there is (i) "urgency due to risk of serious and irreparable harm to competition" and (ii) a basis for a "prima facie" finding of an infringement" (Art. 11).
Art. 11 reflects the political will to equip NCAs with the right enforcement tools to "deal with developments in fast-moving markets" (as per recital no 38), especially in the online world, where the tension between the need for speed and due process is particularly pronounced. Some NCAs like the German Bundeskartellamt (BKA) and UK Competition and Markets Authority (CMA) have already announced that they are considering more recourse to interim measures where appropriate.6
The wording "at least" in Art. 11 implies that Member States remain free to grant their NCAs the power to adopt interim measures based on a lower intervention threshold. For instance, under French law, it is sufficient that the NCA, the Autorité de la Concurrence (Autorité), shows a likelihood (as opposed to a "prima facie finding") of an infringement and that the conduct under investigation may cause serious and immediate (not irreparable) harm. Moreover the Autorité interprets the latter threshold rather broadly.7 In addition, the harm does not have to affect the competitive process as whole. It is sufficient that an individual complainant suffers the harm. The Autorité has imposed interim measures in a number of cases, including against Google in the AdWords investigation (2010), on the basis of this lower intervention threshold.8
All in all, it is too early to tell whether Art. 11 of the Directive, which is almost a copy-paste of Art. 8 of Regulation 1/2003, will result in an uptake of interim measures.
For one, the Commission itself has shied away from imposing such measures, given the strict legal standard that the regulator needs to meet.9 Specifically, the need to prove a "prima facie" infringement hampers the Commission's ability to impose such measures in novel cases, such as those arising in the fast-moving digital markets, where the anticompetitive behaviour may be less than clear-cut.10 In addition, the EU courts require the Commission to balance the conflicting interests, so that the interim measures do not risk serious and irreparable harm to the company on which the measures are imposed. Although Art. 11-1 does not expressly mention the balancing test, it is fair to assume that it is embedded in the condition that the decision "shall be proportionate"—a condition which the national courts must be able to review in expedited appeal procedures (Art. 11-2).
Another important reason for the Commission's reluctance is that the procedure for the adoption of interim measures is basically the same as the normal procedure leading to a final decision: the Commission needs to issue an SO, provide access to the file and afford the parties the right to be heard. Director-General of Competition, Johannes Laitenberger, has warned that interim measures should not be a substitute for speedy and streamlined main proceedings.11 The Commission nevertheless committed to assess "whether there are means to simplify the adoption of interim measures within the ECN" within two years from the implementation of the Directive, i.e., around the beginning of 2023.12
2. Power to Impose Fines
Today, different methodologies applied for the calculation of fines often lead to variations in the level of fine as high as 25 times for the same infringement.13 To minimize divergent outcomes, and to ensure that fines will be "effective, proportionate and dissuasive" (Art. 13), the Directive establishes a common set of core parameters for the calculation of fines. A few examples:
- The legal maximum amount of the fine for Article 101 and 102 TFEU infringements cannot be less than 10% of the total worldwide turnover in the business year preceding the NCA's decision (Art. 15-1). Member States can impose or maintain higher ceilings. It is our understanding that this is only the case in the Netherlands, where the legal maximum fine is set by multiplying the cap of 10% by the number of years of the cartel infringement, subject to a maximum duration of four years, and this ceiling doubles for repeat offenders.
- NCAs should take into account the gravity and duration of the infringement, but they have the right to consider lowering the fine in case the alleged infringer has entered into a consensual settlement of damage claims brought by the alleged victim (Art. 14-2).
- Although settled EU case law establishes parental and successor liability for infringements of Art. 101 and 102 TFEU, several Member States' laws have a divergent approach. This may result in lower fines or even allow companies to evade fines altogether through corporate restructurings and mergers.14 For this reason, Art. 13-5 provides that Member States should ensure that "the notion of undertaking applies" when parents or successors are involved in order to avoid that perpetrators evade their liability through mergers or corporate restructuring.
- Last, NCAs will be able to provide mutual assistance for the enforcement of fines when companies have no legal presence or assets in the territory of the NCA imposing the fine (Art. 26).
B. Harmonizing and strengthening the NCAs' leniency regimes
The ECN+ Directive also seeks to enhance the enforcement of Art. 101 and 102 TFEU throughout the EU by harmonizing the NCAs' leniency regimes in a way that levels the playing field and encourages whistle-blowing. Some provisions seek to smoothen the leniency process for the applicants (infra 1) while others aim to secure adequate protection—either protection against undue disclosure for the leniency applicants themselves or protection against sanctions for their companies' staff (infra 2).
1. A harmonized leniency process for secret cartels across the EU
Today, there is no "one-stop-shop" system for leniency applications. The Commission's and NCAs' leniency programs are legally independent and subject to varying requirements. As a result, a successful application before the Commission or an NCA does not automatically secure the same status before other NCAs. Instead, the applicant must seek leniency separately in each Member State likely concerned by the cartel, and, as consequence, its place in the queue may vary significantly.
The two branches of the EU legislature failed to agree on a "one-stop-shop" system for leniency applications, but the ECN+ Directive does provide for two improvements in the current system:
- First, it requires all Member States to establish a marker system for immunity applications (Art. 21-1). Markers allow a company to secure a place in the queue in order to collect evidence that would meet the evidentiary thresholds for immunity. The marker system is optional for cases where the applicant requests a reduction of fines (Art. 21-5). That said, the marker system is already widely used in the EU today, so the impact of this requirement is rather limited.
- Second, the ECN+ Directive codifies the system of summary applications already enshrined in the non-binding ECN Model Leniency Programme (Art. 22). In practice, this means that applicants who have either requested a marker or submitted a full application to the Commission will be able to submit summary applications to NCAs for the same secret cartel, provided that more than three Member States are affected (the rationale for the latter condition being that the Commission will typically deal with cases affecting three or more Member States).
During the period that the Commission deliberates whether to take on the case, the NCAs will, in principle, not be able to request additional information, let alone a full application, from the summary applicant. If the Commission decides not to pursue the case, the NCAs must enable the applicant to submit a full application and that application will be deemed to have been submitted at the time of the summary application, provided the latter covers the same affected products and geographies and the same duration of the cartel as the application before the Commission. Recital n° 63 clarifies that the applicant carries the burden of updating the summary applications if the scope of the application to the Commission changes.
Importantly, at the European Parliament's initiative, leniency applicants will be able to make all their submissions (i.e., full and summary leniency applications as well as markers) in any official language of the EU bilaterally agreed between the applicant and the NCA (Art. 20-3 and 21-4).
For the rest, the ECN+ Directive codifies the requirements for immunity and other leniency applicants that already feature in the Commission's 2006 Leniency Notice.15
2. Protection for leniency applicants and their staff
In essence, leniency applications will benefit from the same degree of protection against disclosure as is currently available in Commission proceedings.
Thus, in order to prevent discovery of leniency statements outside the EU, Member States must enable the submission of leniency applications orally or by other means that prevent applicants from taking possession of those statements (Art. 20-1).
Furthermore, (i) leniency statements will be accessible only to parties to the antitrust proceedings and only for the purpose of exercising their rights of defence; and (ii) parties who have obtained access to the NCAs' file may use information contained in leniency statements only where necessary for the exercise of their rights of defence in national court proceedings and on very limited occasions (allocation of fines among cartel participants, review of an Article 101 or 102 TFEU decision) (Art. 31-34).16
Another set of provisions in the ECN+ Directive concern a completely different type of protection: that of current and former staff of leniency applicants against criminal or other sanctions.
It is worth recalling the context: the vast majority of EU Member States impose criminal or other sanctions on individuals for violations of their competition laws (for example, UK, Belgium, France, Greece, as well as Austria, Germany and Poland in relation to bid rigging, etc.). At the same time, few of them grant immunity from such sanctions in exchange for cooperation (Austria, UK). The threat of punishment discourages individuals from blowing the whistle, which in turn risks frustrating the overarching goal of the Directive.
Member States will now have to guarantee full protection from non-criminal sanctions against current and former directors, managers and other members of staff of immunity applicants (Art. 23-1). As regards criminal sanctions, Member States will have the option to have their prosecuting authorities either grant full protection or only mitigate these sanctions by weighing the interest in prosecuting and/or sanctioning the individual against the individual's contribution to the detection and investigation of the cartel (Art. 23-3).
To be eligible for this protection, the individual must inter alia cooperate with the relevant NCA. Also, the immunity application of the company must predate the time when the individual was made aware of the proceedings against him. For protection from criminal sanctions, the individual must also cooperate with the prosecuting authority.
Regulation 1/2003 brought about a fundamental change in the enforcement of Art. 101 TFEU by granting NCAs and national courts the power to apply this Treaty provision in its entirety (i.e., including Art. 101-3 TFEU). It further enhanced the decentralized enforcement not only of Art. 101 TFEU but also of Art. 102 TFEU by providing inter alia for the effective cooperation between the Commission and the NCAs within the Network of Competition Authorities, which became known as the European Competition Network (ECN).
The ECN+ Directive is the next milestone in the history of EU competition law enforcement. There is no doubt that its chapters IV and V will bolster the enforcement powers of the NCAs that form part of the ECN and intensify their networking activities. It is less clear to what extent chapter VI, which will strengthen the NCAs' leniency regimes, will effectively boost the incentives for companies to cooperate with the Commission and the NCAs in detecting and sanctioning cartel behaviour. Ultimately, the companies hold the key and they will continue to weigh the advantages in terms of a zero fine or a lower fine on the public enforcement front against the disadvantages in terms of facing damage claims in follow-on private litigation. Only time will tell whether the ECN+ Directive will move the needle.
© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
Although the Advisory does not review the remaining chapters, their importance should by no means be underestimated. Two chapters are worth highlighting here: Chapter II requires Member States to guarantee that their NCAs will be independent and adequately staffed—clearly a sine qua non for the establishment of an "ECN+". Chapter VII reinforces the mutual assistance between NCAs—another pillar for an enhanced cooperation between the NCAs.
Cf. its judgment in case T-54/14—Goldfish and Others v Commission (2016). That said, the Directive does not address the question whether covert recordings are lawfully collected, which remains an issue of national law.
An interview with Andrea Coscelli, April 4, 2017, GCR, Vol. 20(3); BKartA mulling how to standardise interim measures, PaRR, March 19, 2018 Mundt calls for 'rethink' of remedies, injunctions for Internet economy, MLex, November 23, 2016.
The so-called "sausage cartel" in Germany was one of the most notorious examples. Because of a legislative gap, two companies which participated in a cartel to fix the price of sausages managed to escape fines of € 128 million simply by transferring all their assets to new corporate entities. The German competition law was amended in 2017 to close this loophole.